David Bushby (Tasmania, Liberal Party) Share this | Hansard source

On behalf of Senator Eggleston, the Chair of the Senate Economics References Committee, I present the report of the Economics References Committee on bank mergers, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.

On behalf of Senator Eggleston, the Chair of the Senate Economics References Committee, I present the report of the Economics References Committee on government measures to address confidence concerns in the financial sector, the Financial Claims Scheme and the Guarantee Scheme for Large Deposits and Wholesale funding, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

A little over 12 months ago the collapse of Lehman Brothers brought to a head the effects of the subprime crisis—a crisis which started over 12 months prior to that. That led, ultimately, to the start of what can only be described as a full financial meltdown. This had serious consequences for public confidence worldwide, particularly in financial institutions. But, thanks almost entirely to the sound banking and prudential framework that was put in place by the coalition government in the late 1990s, Australia’s banks and financial system were generally very sound at this point and we were at no endemic threat as a direct consequence of the then occurring financial meltdown. Nonetheless, there were confidence concerns, particularly in other nations. That led to a need to protect depositors’ interests in those countries. The fact that guarantees were being put in place elsewhere, which would act to attract deposits away from Australian institutions, combined with the real threat that a complete evaporation of depositor confidence here could have occurred, led to the need for action on this front in Australia. This was first publicly pointed out by the Leader of the Opposition on 10 October. He called for bringing forward the $20,000 proposed cap and putting it in place as a $100,000 cap. Subsequently, the government announced that it was proceeding to put in place an unlimited guarantee. This raised a number of confidence issues for those institutions that were not being covered by that guarantee and led to a run on redemptions in those institutions that were not the beneficiary of the guarantee.

Evidence to the committee noted that this run on redemptions was already being seen as a trend. However, what was quite clear also from the evidence was that upon the announcement of the guarantee that trend crystallised, with the result that those institutions that were not the beneficiary of that had a massive increase in redemption requests, leading to the overall inability of those institutions to meet those requests and ultimately a freezing of many of those institutions. That had a long-term effect such that 11 months later investors in those institutions cannot receive their funds. We made some comments on that. I only have seven seconds left. There were a number of recommendations made, particularly to do with wholesale funding and also securitisation.

Debate interrupted.